HR & cryptocurrency: Can you use it to pay wages? 401(k) options?

PositionNuts & Bolts

Cryptocurrencies are not legal tender. But this hasn't stopped some employees from wanting to be paid in crypto. Nor has it stopped Fidelity Investments from offering crypto as a 401(k) investment option. Is it a life-saver for employers with young employees or an unnecessary risk?

Let's work through the issues, bit by Bitcoin.

Paying wages in crypto

The IRS got ahead of this issue eight years ago. It made clear that neither you nor your employees can evade withholding and reporting by paying in crypto.

In fact, the process is much more arduous. You may, according to the IRS, choose to pay employees in Bitcoins or other cryptocurrencies. But you must peg the fair market value of your cryptocurrency on payday to U.S. dollars. And all the usual withholding, depositing (also in U.S. dollars) and reporting rules apply.

How do you identify the fair market value? If a cryptocurrency is listed on an exchange and the exchange rate is established, the FMV is determined by converting the crypto into U.S. dollars at the exchange rate. The IRS warns your conversion must be reasonable and consistent.

Many state payday laws, on the other hand, do require employees to be paid in legal tender. But they also recognize employees may receive property, such as stock or stock options. While paying in crypto arguably is equivalent to property, you'd still need to find the crypto's FMV on payday and make the conversion into cash.

How you'd actually pay in crypto is another story because, obviously, direct deposit is off the table.

Bottom line: You can have a policy against paying employees in crypto and it probably won't be a deal breaker for the vast majority of employees. But if paying in crypto sounds good, first take precautions (see box at right) and check with your state labor department for clear guidance.

401(k) investment options

The Supreme Court recently reminded 401(k) plan sponsors of their duty to offer employees only prudent investment options. (Fidelity isn't a fiduciary, so it has nothing to lose with its crypto 401(k) option.)

That begs the question: Is offering a crypto option in your 401(k) plan prudent?

The Department of Labor doesn't seem to think so, saying that crypto is a new, volatile investment. It cautioned employers to tread carefully and has even begun investigating some plans that offer crypto options. (Read the DOL analysis at

A recent Fortune magazine report says that while young workers are clamoring...

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